Lending a Not-for-Profit’s Good Name to a Corporate Sales Campaign: Charitable Solicitation Requirements
Maxine Romano, Director, Audit & Accounting
Great news! A local company has chosen your charity as the beneficiary of an upcoming sales campaign. The promotion promises a $1 donation to your charity for each unit sold. The company estimates your charity will receive $100,000 as part of the promotion. Your charity’s name will be used prominently throughout the marketing campaign, and because the company sells the product throughout the U.S., it will be excellent publicity for your charity. Now what?
This type of marketing is often referred to as “charitable sales promotion” or “cause marketing.” Charitable sales promotions have exploded over the last decade, and as such, the activity is regulated by states to ensure the charitable dollars reach the designated not-for-profit. Currently, 22 states regulate commercial co-venturers and 39 states and the District of Columbia have charitable solicitation laws. The for-profit company is considered a “commercial co- venturer,” because it engages in a joint venture with a charitable organization to offer benefits to charity while it sells its goods or services. The rules and terminology vary from state to state.
Best Practices and (in some states) Requirements:
The following is a general overview. It is important to confirm requirements in each state where the charitable sales promotion will actually occur.
Register for Charitable Solicitations. Not all states require charitable solicitation registration but for those that do, the charity must register prior to presenting the promotion to the public. There is a Uniform Registration Statement (URS) that can be used to register in all but three states (Colorado, Florida and Oklahoma). The URS is for the initial registration in each state and is usually only valid for one year. The charity may need to renew in each state separately, if the promotion lasts longer than a year. Furthermore, most states require additional attachments with registration. Plan ahead because it may take some time to acquire the necessary signatures and attachments (e.g. Form 990, corporate documents, IRS determination letter and financial statements).
Separate Accounting. The commercial co-venture agreement should require a separate accounting and recordkeeping to the charity from the company. This should include specific timing of when the accounting will be provided to the charity and the manner of reporting.
Payments to the Charity. The commercial co-venture agreement should outline the date and manner that the contributions will be remitted to the charity.
Limitation Language. Limitation language on the promotional or marketing materials is critical to provide clarity of the charitable sales promotion to consumers. This language should be in at least ten-point type font. The requirements often include:
- Disclosures of the amount of contribution per unit;
- The charity’s name, address, and phone number;
- The dates of the promotion;
- The percentage of the purchase that is tax-deductible (if any) to the purchaser; and
- Any other limits on the contribution or matching contributions from the commercial co- venturer to the charity (i.e. limited to $100,000 total).
Commercial Co-venturers State Requirements. If the company is required to register in a state as a commercial co-venturer; consider requiring the company to provide proof of the registration and, if applicable, a renewal to the charity. Typically, a registration is only good for one year. Therefore, if the campaign lasts longer than a year, a renewal may be necessary. Consider including language in the agreement confirming the commercial co-venturer’s responsibility for any federal, state, and local filing requirements.
Written Agreement. Most states require a written agreement to state the terms and conditions of the charitable sales promotion. Even if there is no requirement within the state of the charitable sales promotion, a written agreement is crucial. Include as many of the items outlined above as required or as the charity feels are necessary to protect itself. The provisions may include:
- Specific identification of the charity and the purpose of the benefits;
- The geographic area of the promotion;
- The beginning and ending dates of the promotion;
- Estimate of the quantity of goods or services to be sold;
- Requirement to represent to the public the amount (or an estimate) that will be contributed to the charity;
- Requirement of a separate accounting, including the date(s) when the accounting is due to the charity;
- Timing of the remission of contributions to the Normally, all funds and accountings must be provided no later than 30 days after the end of the charitable sales promotion (even though most states require the funds be remitted within 90 days of receipt);
- The manner in which the charity’s name, logo, will be used in the promotion and the requirement for the charity to review and approve any usage;
- Requirement that the company will seek permission from the charity before soliciting contributions directly from any businesses or individuals (this provision may prevent an awkward event or risk, harming the relationship with an already substantial donor to your charity);
- Requirement that the company may not act as an agent for your charity or represent themselves as being your charity in entering into any agreement with a third party;
- The right of the charity to evaluate the effectiveness of the promotion at the end of the marketing campaign (this is especially important if the charity plans to have additional charitable sales promotions in the future with other partners);
- If the campaign is conducted in such a way that the donors will expect a donor receipt, the agreement should outline which party will be responsible for providing the donor If the charity is responsible, the company should forward the name, address, and amount for each individual. The charity may want to request this information regardless of who issues the receipt to help build its donor records; and
- Any other state specific provisions required in the written agreement by state